Growth Stocks
Although growth stock picks can be highly volatile, they can make good long-term investments. They may be well-known stars or quiet gems, but they do share one common attribute—they are growing at a higher-than-average rate within their industry, or within the market as a whole, and could keep growing for years or decades.
And keep in mind that we focus on growth stocks, which have a good long-term history and favourable prospects. We downplay momentum stocks that tend to attract many investors simply because they are moving faster than the market averages, but are liable to fall sharply when their momentum fades.
There’s room for growth stock investing in your portfolio, but make sure you follow our TSI Network three-part Successful Investor strategy for your overall portfolio:
- Invest mainly in well-established companies;
- Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
- Downplay or avoid stocks in the broker/media limelight.
Make better stock picks when you read this FREE Special Report, Canadian Growth Stocks: WestJet Stock, RioCan Stock and More.
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GOOGLE INC. $569 (Nasdaq symbol GOOG; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 323.9 million; Market cap: $184.3 billion; Price-to-sales ratio: 5.0; No dividends paid; TSINetwork Rating: Above Average; www.google.com) is the world’s leading Internet search engine. The search service is free, but it provides a platform for Google to sell ads on its websites. Ads account for 96% of its total revenue.
Google continues to hire new employees as it builds up its non-search operations, including its Google+ social-networking site. Google+ now has 90 million users, up from 40 million in October 2011.
Even with these extra expenses, Google’s earnings in the three months ended December 31, 2011 rose 9.7%, to $3.1 billion from $2.85 billion a year earlier. Earnings per share rose 8.6%, to $9.50 from $8.75, on more shares outstanding. These figures exclude unusual items, mainly stock options paid to employees.
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Google continues to hire new employees as it builds up its non-search operations, including its Google+ social-networking site. Google+ now has 90 million users, up from 40 million in October 2011.
Even with these extra expenses, Google’s earnings in the three months ended December 31, 2011 rose 9.7%, to $3.1 billion from $2.85 billion a year earlier. Earnings per share rose 8.6%, to $9.50 from $8.75, on more shares outstanding. These figures exclude unusual items, mainly stock options paid to employees.
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MICROSOFT CORP. $30 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 8.4 billion; Market cap: $252.0 billion; Price-to-sales ratio: 3.4; Dividend yield: 2.7%; TSINetwork Rating: Above Average; www.microsoft.com) gets 80% of its sales from its Windows operating system and Office suite of business software. However, the company is taking steps to expand into other areas, as well.
For example, Microsoft recently entered into an alliance with Nokia Corp. (New York symbol NOK). Under this deal, Nokia will make mobile phones that use Microsoft’s Windows Phone software.
Microsoft also paid $8.5 billion in October 2011 for Skype Global. Skype’s software lets computer users make free phone calls over the Internet. Microsoft feels that Skype will enhance its Xbox Live service, which lets users of its Xbox video game consoles communicate with each other online.
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For example, Microsoft recently entered into an alliance with Nokia Corp. (New York symbol NOK). Under this deal, Nokia will make mobile phones that use Microsoft’s Windows Phone software.
Microsoft also paid $8.5 billion in October 2011 for Skype Global. Skype’s software lets computer users make free phone calls over the Internet. Microsoft feels that Skype will enhance its Xbox Live service, which lets users of its Xbox video game consoles communicate with each other online.
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APPLE INC. $447 (Nasdaq symbol AAPL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 932.2 million; Market cap: $416.7 billion; Price-to-sales ratio: 3.1; No dividends paid; TSINetwork Rating: Average; www.apple.com) makes computers and a wide range of electronic devices, including the iPhone and iPad tablet computer.
Apple recently teamed up with several leading textbook publishers to make more titles available to iPad and iPhone users. The company has also launched its new iBooks 2 software, which makes it easy for students to use Apple devices to take notes and search within text. Publishers can also use the program to quickly update content and add features, like video.
This could be a huge market for Apple. By 2020, e-books could account for half of all textbook sales, up from just 3% in 2011.
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Apple recently teamed up with several leading textbook publishers to make more titles available to iPad and iPhone users. The company has also launched its new iBooks 2 software, which makes it easy for students to use Apple devices to take notes and search within text. Publishers can also use the program to quickly update content and add features, like video.
This could be a huge market for Apple. By 2020, e-books could account for half of all textbook sales, up from just 3% in 2011.
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INTERNATIONAL BUSINESS MACHINES CORP. $192 (New York symbol IBM, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.2 billion; Market cap: $230.4 billion; Price-to-sales ratio: 2.1; Dividend yield: 1.6%; TSINetwork Rating: Above Average; www.ibm.com) is the world’s oldest computer company (it began operating in 1911), with operations in over 170 countries.
The company continues to profit from its move away from mainframe computers and toward designing computer systems and managing them on behalf of its clients. The resulting long-term maintenance contracts give it more dependable revenue streams. IBM now gets 55% of its revenue from services.
The company continues to rapidly grow its software business. Right now, it is particularly focused on developing analytics software, which helps businesses and government agencies gather and analyze a wide variety of data. In addition, IBM makes software for applications ranging from traffic management to power grids and food production. Software now supplies 25% of IBM’s overall revenue.
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The company continues to profit from its move away from mainframe computers and toward designing computer systems and managing them on behalf of its clients. The resulting long-term maintenance contracts give it more dependable revenue streams. IBM now gets 55% of its revenue from services.
The company continues to rapidly grow its software business. Right now, it is particularly focused on developing analytics software, which helps businesses and government agencies gather and analyze a wide variety of data. In addition, IBM makes software for applications ranging from traffic management to power grids and food production. Software now supplies 25% of IBM’s overall revenue.
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CHIPOTLE MEXICAN GRILL $356.82 (New York symbol CMG; TSINetwork Rating: Speculative) (303-595-4000; www.chipotle.com; Shares outstanding: 31.8 million; Market cap: $11.3 billion; No dividends paid) is a Denver-based Mexican-restaurant chain. The company charges slightly higher prices than fast-food chains, but it offers higher-quality food, including naturally raised meat, and better decor and service.
In the three months ended September 30, 2011, sales rose 24.1%, to $591.9 million from $476.9 million a year earlier. The company’s restaurants attracted more customers during the quarter, and it raised its prices. That pushed up same-restaurant sales by 11.3%. As well, Chipotle opened 32 new outlets. Earnings per share rose 24.5%, to $1.93 from $1.55.
In the three months ended September 30, 2011, sales rose 24.1%, to $591.9 million from $476.9 million a year earlier. The company’s restaurants attracted more customers during the quarter, and it raised its prices. That pushed up same-restaurant sales by 11.3%. As well, Chipotle opened 32 new outlets. Earnings per share rose 24.5%, to $1.93 from $1.55.
New concept looks promising
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TIM HORTONS $48.38 (Toronto symbol THI; TSINetwork Rating: Average) (905-845-6511; www.timhortons.com; Shares outstanding: 160.1 million; Market cap: $7.7 billion; Dividend yield: 1.4%) operates 3,225 coffee-and-donut shops in Canada and 645 in the U.S.
Without one-time items, Tim Hortons earned $0.65 a share in the three months ended October 2, 2011. That’s up 18.2% from $0.55 a share a year earlier.
Sales rose 8.4%, to $726.9 million from $670.5 million. Canadian same-store sales rose 4.7%, because Tim Hortons launched successful new products like real fruit smoothies and specialty bagels. U.S. same-store sales rose 6.3%, as customers spent more per visit. The company also raised its prices to cover higher costs for coffee and other foods.
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Without one-time items, Tim Hortons earned $0.65 a share in the three months ended October 2, 2011. That’s up 18.2% from $0.55 a share a year earlier.
Sales rose 8.4%, to $726.9 million from $670.5 million. Canadian same-store sales rose 4.7%, because Tim Hortons launched successful new products like real fruit smoothies and specialty bagels. U.S. same-store sales rose 6.3%, as customers spent more per visit. The company also raised its prices to cover higher costs for coffee and other foods.
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RUGGEDCOM INC. $25.31 (Toronto symbol RCM; TSINetwork Rating: Speculative) (1-888-264-0006; www.ruggedcom.com; Shares outstanding: 12.6 million; Market cap: $318.9 million; No dividends paid) is still the target of a hostile takeover bid from U.S. cable and networking equipment manufacturer Belden Inc. RuggedCom makes computer-networking equipment that is used in harsh environments.
Belden recently reaffirmed its offer of $22 in cash for each RuggedCom share. RuggedCom feels that Belden’s offer is too low, and has advised shareholders to reject the bid. The company is looking for other buyers.
RuggedCom is now trading at $25.31 a share, or 15.0% above Belden’s bid. This indicates that investors are anticipating a higher offer from Belden or another bidder.
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Belden recently reaffirmed its offer of $22 in cash for each RuggedCom share. RuggedCom feels that Belden’s offer is too low, and has advised shareholders to reject the bid. The company is looking for other buyers.
RuggedCom is now trading at $25.31 a share, or 15.0% above Belden’s bid. This indicates that investors are anticipating a higher offer from Belden or another bidder.
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BROADRIDGE FINANCIAL SOLUTIONS $23.65 (New York symbol BR; TSINetwork Rating: Extra Risk) (201-714-3000; www.broadridge.com; Shares outstanding: 126.7 million; Market cap: $3.0 billion; Dividend yield: 2.7%) is now working with the Singapore Exchange to build a new service aimed at improving the accuracy, efficiency and transparency of Singapore’s shareholder communication and proxy processes. This system will replace the manual system that is now in use.
The new service will use Broadridge’s shareholder-communications software, but it will be tailored to the specific requirements of the Singapore market and domestic and international investors. The Singapore Exchange will market the service to its listed issuers.
No financial terms were disclosed, but the deal reinforces Broadridge’s leading position in the field of investor communications.
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The new service will use Broadridge’s shareholder-communications software, but it will be tailored to the specific requirements of the Singapore market and domestic and international investors. The Singapore Exchange will market the service to its listed issuers.
No financial terms were disclosed, but the deal reinforces Broadridge’s leading position in the field of investor communications.
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DUNDEE REIT $34.01 (Toronto symbol D.UN; TSINetwork Rating: Speculative) (416-365-3535; www.dundeereit.com; Shares outstanding: 66.1 million; Market cap: $2.2 billion; Dividend yield: 6.4%) is buying Whiterock REIT (Toronto symbol WRK.UN) for $580 million in cash and units. The purchase will make Dundee Canada’s fourth-largest REIT by market cap, up from sixth.
Whiterock owns 88 office, industrial and retail properties in eight Canadian provinces and two U.S. states. These properties contain over 10.8 million square fee of leasable area. Dundee already owns and manages 18.9 million square feet of office, industrial and retail space.
Dundee’s growth-by-acquisition strategy adds risk, but it is steadily diversifying its holdings outside western Canada by purchasing more properties in eastern Canada. Whiterock has 57% of its assets in Ontario, 14% in Quebec and 6% in the Atlantic provinces.
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Whiterock owns 88 office, industrial and retail properties in eight Canadian provinces and two U.S. states. These properties contain over 10.8 million square fee of leasable area. Dundee already owns and manages 18.9 million square feet of office, industrial and retail space.
Dundee’s growth-by-acquisition strategy adds risk, but it is steadily diversifying its holdings outside western Canada by purchasing more properties in eastern Canada. Whiterock has 57% of its assets in Ontario, 14% in Quebec and 6% in the Atlantic provinces.
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EUROPEAN GOLDFIELDS $11.95 (Toronto symbol EGU; TSINetwork Rating: Speculative) (44 (20) 7408 9534; www.egoldfields.com; Shares outstanding: 183.8 million; Market cap: $2.2 billion; No dividends paid) is now the subject of a friendly takeover bid from Eldorado Gold (symbol ELD on Toronto). The offer is for 0.85 of an Eldorado share and $0.0001 in cash for each European Goldfields share. European Goldfields’ board of directors has approved the takeover.
European Goldfields’ Skouries and Olympias gold projects in Greece and its Certej project in Romania would be good fits for Eldorado, which has mines in Greece and Turkey.
Eldorado Gold is now trading at $14.20, which makes the cash and share portions of its offer worth a combined $12.07 per European Goldfields share. European Goldfields is trading just below that price, which indicates that many investors are not expecting a higher offer. However, European Goldfields says it received proposals from a number of potential buyers earlier this year, so a rival bid could still emerge.
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European Goldfields’ Skouries and Olympias gold projects in Greece and its Certej project in Romania would be good fits for Eldorado, which has mines in Greece and Turkey.
Eldorado Gold is now trading at $14.20, which makes the cash and share portions of its offer worth a combined $12.07 per European Goldfields share. European Goldfields is trading just below that price, which indicates that many investors are not expecting a higher offer. However, European Goldfields says it received proposals from a number of potential buyers earlier this year, so a rival bid could still emerge.
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